In a Nutshell: Lendoit seeks to address the global disparity in access to financial services with a peer-to-peer (P2P) lending process that bypasses traditional barriers to loans. The platform provides independent identity verification and credit scoring, connects borrowers directly to lenders, and leverages blockchain technology to facilitate funding in the form of a stable cryptocurrency. Additional protections for lenders include syndicated lending, a Smart Compensation Fund, and access to a default market, all of which increase investment in loans.
According to a World Bank’s Global Findex report, only 69% of the world’s adult population held an account with a financial institution or a mobile money service as of 2017. That means 1.7 billion adults lacked access to the financial services that many take for granted — including loans to buy homes or consolidate debt.
But modern technology has paved the way for those people to access critical financial services when they need them — even without credit history or a bank account. Over the years, many peer-to-peer (P2P) lending solutions have popped up online, but the convenience of those platforms can come with drawbacks — including higher interest rates and geographic restrictions.
Lendoit is a platform that seeks to disrupt the traditional P2P lending space through blockchain technology. The platform, set to launch in late 2019, will enable borrowing and lending across international borders, and its decentralized structure carries lower overhead and, therefore, better rates for borrowers.
“Lendoit developed the smart contract on the blockchain to enable more lenders to give loans. And the lenders and the borrowers speak directly with each other,” said Avi Ben David, Co-Founder and President of Lendoit.
This direct interaction empowers both parties to create secure, transparent lending agreements. And international access to funding bridges the gap between wealthy countries with money to lend and developing nations where individuals need capital.
Lendoit also protects lenders through independent scoring and identity verification as well as additional financial protection measures. These safeguards attract investors to the platform and increase opportunities for borrowers to secure the loans they need.
Innovations Help Overcome Barriers to the P2P Lending Industry’s Growth
P2P lending took off in 2005 and filled a need in the market by facilitating direct lending between financiers and borrowers. Digital platforms emerged to connect the parties for loans, reducing costs while also increasing speed and efficiency by cutting out financial institutions that traditionally acted as middlemen.
Borrowers create profiles on P2P platforms, and investors make offers for funding based on the applicant’s financial profile. Borrowers can accept a single loan or take out multiple, smaller loans to obtain the money they need.
This alternative route to funding allows them to avoid elaborate application and approval processes. And it is especially valuable for those who lack a credit history, or an adequate score and are likely to be turned down by traditional financiers.
But the P2P lending industry’s growth has historically been limited by two barriers. The first is inefficiency; platforms are still centralized, like financial institutions, and most still heavily involved in the lending process.
The second is the inability to lend internationally, which restricts the flow of capital from wealthy nations to others in need of funding to pursue economic and industrial development.
Lendoit’s approach eliminates both of those barriers. The platform is fully decentralized, granting greater autonomy to both borrowers and lenders, who can easily establish blockchain-based smart contracts. Loans are paid using a stable cryptocurrency called Tether, which is tied to fiat values, enabling higher value retention than unregulated cryptocurrencies. And by using internet-native currency, Lendoit bypasses the challenge of exchanging money in international transactions, connecting investors to a global market of borrowers.
Third-Party Credit Scores and Syndicated Lending Improve Funding Prospects
To apply for a loan on Lendoit, users must supply information about themselves and what they’re seeking. That information is automatically fixed and published in a smart contract on the platform, and lenders fulfill the loan through a bidding process.
Lendoit also provides professional scoring of creditworthiness as well as verification APIs. These digital applications broker data access among applications that otherwise cannot communicate with one another. The process enables faster verification of identity and loan risk.
Before investors are willing to back a loan, they need some measurement of how likely a borrower is to pay back that loan. On Lendoit, each applicant is verified by a third-party company that operates in that borrower’s country of residence.
Each Lendoit borrower is evaluated by FriendlyScore, a company that uses digital data — including social media profiles — to build a reliable creditworthiness score that will appear on each application. The method even allows applicants with little to no credit history to qualify for a loan without undergoing the lengthy process of building credit and waiting for bureaus to generate a score. Instead, they can get expedient, cost-effective access to funding.
Another significant benefit for borrowers is the opportunity to obtain syndicated loans — which are loans funded by multiple investors. Enabling more than one investor to pitch in smaller amounts can mitigate risk and create more safety through diversification. That also increases the chances of borrowers getting their full loan amount.
Lender Security Means More Opportunities for Borrowers
Many blockchain-based P2P lending platforms require collateral in the form of a token purchase, which acts as a security on the loan. But Lendoit does not require collateral. Instead, the platform focuses on using other methods to establish confidence for lenders and ensure they don’t end up lending at a loss.
Two of those methods are credit scoring and loan syndication. Lenders can pass on any loan applications from borrowers whose score isn’t high enough or hasn’t been verified by a provider the investor recognizes and trusts. And loan syndication enables lenders to avoid putting all their eggs in a single basket.
But no matter how many safeguards are in place, defaults are bound to happen. In that unfortunate event, investors can fall back on a pair of safety measures offered by Lendoit: the Smart Compensation Fund and the opportunity to sell the debt.
A percentage of every loan originated through Lendoit is put into the Smart Compensation Fund, which can help offset the cost of any loans that end in default. The amount of money stored in this fund is visible to investors at all times. When a loan is classified as a default, a portion of the loan’s value is immediately paid out from the Smart Compensation Fund.
Lendoit also offers investors the opportunity to sell defaulted loans to debt collectors. These collectors are certified professionals — often lawyers or financial companies — operating in the borrower’s home country. When the debt is purchased, the money goes directly from the buyer to the erstwhile lender.
All of these safety measures provide considerable protection to investors. Scoring and verification help to weed out bad risks, while the Smart Compensation Fund and access to the default market can help lenders recoup value on bad investments.
While every investment entails some risk, Lendoit strives to provide a safe environment for P2P lending, thus granting more borrowers access to funds.
Lendoit: Expanding P2P Financing Options
Lendoit plans to initially launch its platform in the Ukraine and Japan by the end of 2019. After a few months, the company plans to expand into Switzerland, Latvia, Russia, Argentina, the United States, and the United Kingdom. From there, it will move on to bring financial services to underbanked and unbanked markets throughout the rest of the world.
The platform currently relies on FriendlyScore for creditworthiness validation, but, in the future, Lendoit will partner with other providers, including Equifax.
Lendoit will start by offering small loan origination up to $3,000 in value. But borrowers will eventually have access to larger loans as the platform and its user base expand.
User growth will include not only the platform’s expanding reach but also the chronological age of users. Many of the young people who need loans now will settle into financial stability later on. At that point, they can provide funding to the next generation.
P2P enables those individuals to change their role from consumer to lender and take advantage of investment opportunities. And Lendoit provides a risk-mitigated environment that is not limited by national borders, to help both ends of the spectrum.